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Romania Wants Its Central Bank to Help Find a Way to End the ‘Greed Tax’

(Bloomberg) -- Romania’s government asked the central bank to help it effectively eliminate a so-called greed tax on banks after the levy prompted the country’s worst market rout since the global financial crisis. Bank stocks surged in Bucharest.

The ruling Social Democrats drew rebuke from central bankers who said the tax, introduced to help keep the budget deficit within European Union limits and curb interest rates on loans, may harm the financial system and undermine monetary policy. The bank has since allowed the leu to weaken to a record low against the euro.

While the cabinet ignored the criticism and approved the bill, it sees “an easy way” for the central bank to render it harmless, according to Darius Valcov, an economic adviser to Prime Minister Viorica Dancila. All rate-setters have to do is change the formula used to calculate the Robor interbank rate, or scrap it all together. Valcov said the move would also end a situation in which, according to him, lend to one another at “unjustifiably” low costs.

“I hope we can get a radical change in the way Robor is calculated or even see its demise,” Valcov said Monday in a phone interview. “A decision will be made with the central bank, which can modify internal rules on market rates without requiring parliamentary approval.”

The proposed solution is an unexpected departure for the government, which has bickered with the central bank over the past month after the greed tax spooked investors. Valcov signaled another shift when, after the government complained about the weak leu, he said the bank is just trying to shield the currency from negative effects.

The central bank and the Finance Ministry are debating how to alleviate pressure on banks from the tax, with rate-setters urging the cabinet to drop the link between the levy and Robor. Valcov suggested the central bank can work with lenders and the government to push Robor to less than 2 percent, a level at which the tax would be zero. The two institutions will resume discussions on Feb. 18, including options about the potential assets targeted by the tax, people familiar with the talks said.

Banca Transilvania SA, the largest lender in the Black Sea nation, rallied as much as 11 percent, the most since the tax was announced last year, while BRD-Groupe Societe Generale SA gained as much as 8.9 percent.

“Local bank stocks are already reacting positively to the news,” BT Capital Partners analysts said in a note. “However, we believe that finance ministry’s standpoint is not in sync with the Prime Minister’s economic adviser’s, which leaves the government course of action still uncertain. ”

Valcov said the government’s aim was to lower borrowing costs for the average Romanian. The cabinet hasn’t projected revenue from the tax in this year’s budget, though January data beat analysts’ expectations, he said.

“We don’t care about the level of the tax or any extra revenue,” Valcov said. “We want borrowing costs for citizens to be close to those of the other Europeans, to be cut in half from the current levels.”

Benchmark borrowing costs in Romania are set to be held at 2.5 percent on Thursday. The European Central Bank’s main refinancing rate remains at zero percent.